Engaged Capital Letter Says Sale of Abercrombie May Be Best Option

Engaged Capital, led by Glenn Welling, sent a letter to the retailer Tuesday saying it had built a position of about 400,000 shares, or about 0.5%.

The letter to the board of Abercrombie says the company needs to start searching for a successor to Chairman and Chief Executive Michael Jeffries, whose employment contract is due to expire Feb. 1, the letter says. Engaged questions Mr. Jeffries’s ability to take the company further while praising his past leadership.

A spokeswoman for Abercrombie & Fitch wasn’t immediately available to comment.

The letter also hints at Engaged’s ultimate goal: selling the company. “A sale of the Company to a private equity buyer may represent the best option for shareholders,” Engaged wrote.

Abercrombie has a market capitalization of about $2.6 billion.

The teen retailer posted losses of $11.5 million in the nine months ended Nov. 2 with sales down more than 7% over the same period. Its stock is down 29% so far this year, while rivals American Eagle Outfitters and Aeropostale Inc. are down 21% and 25% respectively.

Abercrombie held its first investor meeting in two and a half years in November; the company announced plans to close remaining stores of its intimate apparel brand, Gilly Hicks, as well as add more sizes and colors in an effort to compete with fast-fashion stores like Forever 21 and H&M.

During its third quarter earnings call in late November, Abercrombie executives warned that the company expects to continue to face challenges from fast fashion through the holiday period.